Why are pay run bonuses taxed so high?

KB572.htm

Overview

When you include a bonus payment in an employee’s pay run, that pay run may tax at the wrong rate if the bonus pay item is not set up correctly.

Tax on bonus payments is to be calculated as per the Schedule 5 ATO tax calculation. Within Accentis Enterprise, this can be performed automatically in your pay runs by configuring the bonus pay item’s Payment period.

When a payment period is set for a pay item, the pay item will be taxed as if it is spread across the entire period, rather than as a lump sum.

If the bonus pay item does not have a payment period, the bonus amount will be added to the employee’s other pay items and the tax withheld will be calculated on the full amount for the pay run. This will likely result in an increased amount of tax.

Changing the bonus’s payment period

What happens when the payment period is changed?

When you include the bonus in a pay run, the entire amount is still paid, but the tax is calculated based on the number of weeks set as the pay item’s Payment period. In other words, the employee is taxed as if the bonus was spread out over the whole period rather than just that pay run.

The full calculation:

  • First, the tax for the pay run is calculated excluding the bonus.
  • Then, the bonus is divided by the number of weeks in its Payment period field (to calculate the partial amount per week) and added to the pay run.
  • The tax is then calculated for the pay run including the partial bonus amount.
  • The tax excluding the bonus is subtracted from the tax including the bonus (to calculate the increase due to the partial bonus specifically).
  • This increase is then multiplied by the number of weeks in the Payment period field to determine the tax for the full bonus amount.

Please note that the tax calculation assumes it is the only bonus for the payment period. If you include another bonus in the same period, the tax withheld may not be sufficient.

For example, if you enter the payment period as 52 weeks and then pay 2 bonuses in the same year, it will calculate the tax for both bonuses over the full year and likely result in less tax withheld than required.

If paying multiple bonuses in the year, reduce the number of weeks to the period the bonus applies to. For example, if 2 bonuses are paid per year, using 26 weeks would calculate the tax across the 6-month period rather than the full year.

How to change the payment period

  1. Navigate to the Pay items form (Payroll > Setup > Pay items…).
  2. Locate your bonus pay item and select Edit.
  3. Set the Payment period field to the number of weeks to which the bonus applies.

  1. Select Update to save your changes.

Did you find this article helpful?

If this article is missing information, ambiguous or didn’t give you clear instructions, let us know and we will make it better! Please email us and quote the KB# in the top left of this article to let us know why it didn’t help you out and we will point you in the direction of additional information.

Last edit: 02/04/2026